Mortgage blog: Rise in approvals set to be start of steady increase in lending

Posted 8 August 2014

Mortgage approvals in the UK rose for the first time in five months in June, suggesting that lenders have finally managed to get to grips with new regulations designed to make the industry more responsible.

Home loan approvals increased from 62,007 in May to 67,196 in June according to figures from the Bank of England. Experts were surprised by the sharp increase with most predictions suggesting only a modest upturn.

Mortgage ‘bottleneck' beginning to clear

The data for June shows the first increase in mortgage approvals in five months, following a slowdown in lending as new mortgage rules came into force. The Guardian reports that the rise suggests that lenders are "getting to grips" with the new Mortgage Market Review (MMR) regulations that require them to more carefully prove that home loans are affordable to applicants.

The BBC reports that the changes to underwriting rules may have created a "bottleneck" which is now beginning to clear. Richard Sexton, director of e.surv chartered surveyors, says: "The temporary log-jam in the mortgage market is beginning to clear, and lending has returned to healthy sustainable volumes."

Matthew Pointon, a property economist at Capital Economics, believes that the latest figures probably mark the beginning of a steady rise in mortgage lending over the next few months. He tells the newspaper: "The disruption caused by the MMR appears to be passing, with the Bank of England reporting a healthy rise in mortgage approvals in June. A strong economic recovery will ensure that lending grows steadily over the coming months.

"On balance, mortgage lending is likely to rise at a slow but steady pace over the rest of the year. In turn, that is consistent with further gains in house prices, although at a slower pace than that seen over the past 12 months."

Leading industry body raises mortgage lending predictions

A separate report from a leading industry body has also predicted a strong picture for the UK's mortgage market in the next 18 months. The Council of Mortgage Lenders (CML) has revised its estimate for gross lending in 2014 from £195 billion to £208 billion, representing an 18% increase on 2013.

The CML also raised its forecast for gross mortgage lending in 2015 by £14bn to £220bn. It said: "There is a degree of uncertainty as to the possible impact of rate increases, given that households have not experienced such an event for seven years and that the backdrop is one where there has been a protracted fall in real incomes and uncertainty about future income growth.

"Given a favourable jobs market, it seems reasonable to think that the majority of households will cope well with initial gentle rate rises. Where households are financially stretched and do not have coping strategies, arrears will build, although this should be relatively slowly over time."

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